The move signals a changed investment climate resulting from the recent slowdown of the Chinese theatrical box office.
The investors being dropped are Beijing Weiying (aka Wepiao,) one of China’s largest online ticketing companies, and media investor Beijing Qing Zhong Tong Chuang Asset Management. It will continue to raise $29.8 million (RMB200 million) from a unit of state-controlled investment group CITIC.
In March, OSGH signaled that it would split out its Chinese multiplexes into a separate company that would first attract outside investors, and later might go for a public share listing. Now it says that it reducing its expansion plans.
“It was anticipated that the proceeds from the subscription by the Investors will be used for building and acquiring of more than 100 cinema screens during the coming three years, and that the expected capital expenditure per screen, which will be built or acquired during the coming three years will amount to approximately RMB2.5 million to RMB3.0 million. Due to changes in economic and market conditions in (mainland China), it is expected by the group that the capital expenditure required will be reduced to around RMB150 million to RMB200 million,” the company said.
OSGH, which operates cinemas in Hong Kong, Singapore and Taiwan, was one of the first companies to operate multiplex cinemas in China. But it has struggled to turn that early lead into either market dominance or profits. In the first half of this year, OSGH moved from profit to a loss of $4.25 million (HK$33 million) with the mainland China business dragging down the other segments. It explained that the losses in China were due to growing competition, new screen incubation issues and finance costs.
At the time of the proposed investments OSGH touted business synergies as a side benefit of Wepiao’s involvement in the group, and strengthened financial management resulting from Qing Zhong Tong Chuang’s participation.
OSGH shares were up 5% in trading Monday on the Hong Kong Stock Exchange prior to the after-hours announcement.